Hunter v. Midfirst Bank
(4:21-cv-00362)
District Court, E.D. Arkansas
MAY 6, 2021 | REPUBLISHED BY LIT: APR 27, 2022
CONSOLIDATED ORDER
This case revolves around a 2018 statutory foreclosure sale of Plaintiff Rebecca Hunter’s house. Ms. Hunter sued Defendants MidFirst Bank and its lawyers, Wilson & Associates, in Arkansas state court.
Ms. Hunter alleges that Defendants violated various Arkansas statutes during the foreclosure process.1
Ms. Hunter also alleges fraud and other common law torts.2
MidFirst removed the case to this Court.3
Ms. Hunter wants to be back in state court and has moved to remand the case.4
Both Defendants have filed Motions to Dismiss.5
All of these Motions have been fully briefed.
For the reasons that follow, Ms. Hunter’s Motion to Remand is DENIED,
Wilson & Associates’s Motion to Dismiss is DENIED without prejudice as moot,
and
MidFirst’s Motion to Dismiss with prejudice is GRANTED in part and DENIED in part.
Ms. Hunter will have 30 days from the date of this Order to file an Amended Complaint.
1 Pl.’s Compl. (Doc. 2).
2 Id. ¶¶ 16, 19–21.
3 MidFirst’s Notice of Removal (Doc. 1).
4 Pl.’s Mot. to Remand (Doc. 14).
5 Wilson & Associates’s Mot. to Dismiss (Doc. 8); MidFirst’s Mot. to Dismiss (Doc. 12).
Factual Background and Procedural History6
On April 2, 2021, Ms. Hunter filed her Complaint in Arkansas state court.7
Ms. Hunter is an Arkansas resident.8
MidFirst is a savings association “organized under the laws of the State of Oklahoma,” having its principal place of business in Oklahoma.9
Wilson & Associates is a “Limited Liability Company organized and existing under the laws of the State of Arkansas with its principal place of business” in Arkansas.10
According to Ms. Hunter’s Complaint, she executed a security instrument in 2008, which conveyed a piece of real property (the “Property”) she owned in Little Rock, Arkansas.11
From this allegation, the Court draws the following reasonable inferences:
(1) Ms. Hunter borrowed money to purchase a house,
and
(2) Ms. Hunter collateralized the loan by executing, as grantor, a deed of trust (the security instrument).12
The security instrument was recorded in the real estate records of Pulaski County, Arkansas.13
This instrument was modified in 2015.14
This modification resulted in Ms. Hunter being directed to make payments to Midland Mortgage, a division of MidFirst.15
At some point after this modification, Ms. Hunter began experiencing
6 For both the Motion to Remand and MidFirst’s Motion to Dismiss, the Court treats the facts alleged in the Complaint as true.
7 Pl.’s Compl. (Doc. 2).
8 Id. ¶ 1.
9 Id. ¶ 2.
10 Id. ¶ 3.
11 Id. ¶ 5.
12 “A deed of trust is a deed conveying title to real property to a trustee as security until the grantor repays a loan.” Mortg. Elec. Registration Sys., Inc. v. Sw. Homes of Ark., 2009 Ark. 152, at 5, 301 S.W.3d 1, 4 (internal quotations omitted). “Under a deed of trust, the borrower conveys legal title in the property by a deed of trust to the trustee.” Id., 301 S.W.3d at 4.
13 Pl.’s Compl. (Doc. 2) ¶ 5.
14 Id.
15 Id.
“financial difficulties.”16
Around April 2018, Wilson & Associates, on behalf of MidFirst, “executed and filed a Notice of Default and Intention to Sell . . . .”17
This notice told Ms. Hunter that she had defaulted on her mortgage and that the Property would be sold at a foreclosure sale on June 11, 2018.18
However, the notice did not identify the specific provision of the mortgage that was violated.19
Ms. Hunter alleges (among other things) that Midfirst and Wilson & Associates failed to comply with “mandatory provisions of the Arkansas Statutory Foreclosure Act,20 including notice provisions and the loan modification and forbearance assistance requirements ”21
A. The Arkansas Foreclosure Act Statutory Scheme
“The Statutory Foreclosure Act establishes a system of nonjudicial foreclosure proceedings as an alternative to judicial foreclosures.”22
The Arkansas Supreme Court says that the Act “must be strictly construed and complied with.”23
It is necessary to provide a general overview of the statutory scheme.
Arkansas Code Annotated section 18-50-102 authorizes a trustee to foreclose a deed of trust.
Before doing that, the trustee (Wilson & Associates) and the beneficiary (MidFirst) must provide multiple notices to the grantor (Ms. Hunter).24
For example, and highly relevant to this case, at least ten days before initiating a foreclosure, the beneficiary must provide the grantor
16 Id. ¶ 9.
17 Id. ¶ 6.
18 Id.; see also Ex. A to Pl.’s Compl. (Doc. 2) at 15.
19 Pl.’s Compl. (Doc. 2) ¶ 6; see also Ex. A to Pl.’s Compl. (Doc. 2) at 15.
20 Ark. Code Ann. §§ 18-50-101 to 116.
21 Pl.’s Compl. (Doc. 2) ¶ 6.
22 Dickinson v. SunTrust Nat. Mortg. Inc., 2014 Ark. 513, at 3, 451 S.W.3d 576, 579.
23 Id., 451 S.W.3d at 579.
24 See Ark. Code Ann. §§ 18-50-103 to 106.
(among other things) “[i]nformation . . . regarding the availability to the grantor . . . of each program for loan modification assistance or forbearance assistance offered” by the beneficiary or a government agency “if the beneficiary . . . participates in the government agency’s program . . ..”25
The beneficiary’s obligations with respect to this notice are not delegable to the trustee.26
Arkansas Code Annotated section 18-50-104 says that the trustee cannot ultimately sell the property unless three conditions are satisfied.
First, the trustee must file a “notice of default and intention to sell” with the “recorder of the county in which the trust property is located ”27
The notice must state (among other things) “[t]he default for which foreclosure is made.”28
The notice must be mailed to the grantor within thirty days of the recording of the notice.29
The property can’t be sold until sixty days after the notice is filed.30
Second, the beneficiary must certify to the trustee that “each . . . grantor who applied for loan modification or forbearance assistance has been notified that the . . . grantor does not meet the criteria for loan modification or forbearance assistance . . . .”31
Third, the beneficiary must send notice that the grantor does not meet the criteria to the property address or mailing address of the grantor at least ten days before selling the property.32
The beneficiary cannot delegate these certification and notice requirements.33
25 Id. § 18-50-103(2)(A)(ii)(d).
26 Id. § 18-50-103(2)(C).
27 Id. § 18-50-104(a)(1).
28 Id. § 18-50-104(b)(4).
29 Id. § 18-50-104(c)(1).
30 Id. § 18-50-104(a)(2).
31 Id. § 18-50-104(a)(3)(A)(i)(a).
32 Id. § 18-50-104(a)(3)(A)(ii).
33 Id. § 18-50-104(a)(3)(B).
Arkansas Code Annotated section 18-50-111 explains the form and effect of a trustee’s deed. With respect to form, a trustee’s deed “shall contain recitals of compliance with the requirements of [the Act] relating to the exercise of the power of sale and sale of the trust property, including recitals concerning mailing and publication of notice of default and intention to sell and the conduct of the sale.”34
With respect to effect, “[u]pon the filing of the deed for record with the recorder of the county in which the trust property is situated, the recitals shall be prima facie evidence of the truth of the matters set forth therein, but the recitals shall be conclusive in favor of a purchaser for value in good faith relying upon them.”35
Arkansas Code Annotated section 18-50-116 says that nothing in the Act “shall be construed to [i]mpair the right of any person or entity to assert his or her legal and equitable rights in a court of competent jurisdiction.”36
The Act says that a “claim or defense shall be asserted prior to the sale or the claim or defense is forever barred and terminated, except the mortgagor may assert the following against either the mortgagee or trustee:
(i) [f]raud by any party;
or
(ii) [f]ailure to strictly comply with the provisions of [the Act].”37
However, “[a]ny of the above claims or defenses may not be asserted against a subsequent purchaser for value of the property.”38
B. Allegations Against MidFirst
Ms. Hunter claims that MidFirst “invalidly” purchased Ms. Hunter’s property by Trustee’s Deed on June 11, 2018.39
Ms. Hunter says that MidFirst, through the Trustee’s Deed, “misrepresent[ed] under oath” that MidFirst had complied with all of the Act’s statutory notice
34 Id. § 18-50-111(a)(1).
35 Id. § 18-50-111(a)(2).
36 Id. § 18-50-116(d)(2)(A).
37 Id. § 18-50-116(d)(2)(B)(i)–(ii).
38 Id. § 18-50-116(d)(2)(C).
39 Pl.’s Compl. (Doc. 2) ¶ 6.
and certification requirements.40
The Trustee’s Deed was recorded in the Pulaski County property records on June 15, 2018.41
Around August 2018, MidFirst purportedly transferred title to the Property to Invest America, LLC.42
Invest America conveyed the Property by Warranty Deed to Svetla Sands (a nonparty), who recorded the deed on January 17, 2019.43
Ms. Hunter alleges that MidFirst failed to strictly comply with the Act.44
Specifically, Ms. Hunter claims that MidFirst:
(1) failed to record a Notice of Default and Intention to Sell that identified the “specific default for which foreclosure was being made;”45
(2) failed to send Ms. Hunter the Notice of Default and Intention to Sell within 30 days of its recording;
(3) failed to provide Ms. Hunter with loan modification and forbearance options “that might apply to assist her in maintaining ownership and possession of her home despite her financial difficulties;”
(4) failed to certify to Wilson & Associates that Ms. Hunter did not meet the criteria for any available loan modification or forbearance assistance programs;
(5) fraudulently misrepresented to Wilson & Associates that Ms. Hunter received notice from MidFirst that Ms. Hunter did not qualify for loan modification or forbearance; (6) failed to notify Ms. Hunter that she did not qualify for loan modification or forbearance assistance at least ten days before the foreclosure sale;
(7) conducted the foreclosure sale knowing that MidFirst had not complied with the Act;
(8) purchased the Property at the foreclosure sale knowing that MidFirst had not complied with the Act;
and
(9) filed
40 Id. ¶ 9.
41 Id. ¶ 6.
42 Id. ¶ 7.
43 Id.
44 Pl.’s Compl. (Doc. 2) ¶¶ 12–13, 15–16.
45 Id. ¶ 8. On May 7, 2020, the Arkansas Supreme Court ruled that the Arkansas Statutory Foreclosure Act requires a notice of default and intention to sell to “state the specific default that occurred.” Davis v. PennyMac Loan Servs., Inc., 2020 Ark. 180, at 8, 599 S.W.3d 128, 133. Ms. Hunter points to this ruling to allege that the notice Wilson & Associates used (back in 2018) for Ms. Hunter’s foreclosure was defective because it did not state the specific event of default.
the Trustee’s Deed, which “fraudulently and maliciously misrepresented under oath” that MidFirst had complied with the Act.46 Ms. Hunter says these statutory violations “damaged” her.47
Ms. Hunter also alleges that MidFirst defrauded her.48
According to Ms. Hunter, MidFirst’s failures to comply with the Act constituted “intentional, false, and fraudulent conduct of a foreclosure proceeding against [Ms. Hunter]” and “was committed with an intent of clouding or discrediting [Ms. Hunter’s] title and interest to the property . . . .”49
Specifically, according to the Complaint, MidFirst “falsely represented to [Ms. Hunter] that her Property was subject to foreclosure and could be sold even though MidFirst knew it had not complied with the requirements of the Act . . . .”50
The Complaint also alleges that MidFirst “knowingly misrepresented to [Ms. Hunter] . . . in the false Trustee’s Deed that [MidFirst] had complied with the requirements of the Act . . . and was therefore entitled to ownership and possession of the property.”51
MidFirst allegedly made these various misrepresentations to induce Ms. Hunter to pay MidFirst’s “various fees and penalties sought in the foreclosure action.”52
MidFirst also allegedly made the misrepresentations so that it could purchase the Property and deprive her of her rights in the Property.53
Ms. Hunter says that she justifiably relied on MidFirst’s alleged misrepresentations because MidFirst “was in a superior position to know and understand the issues surrounding the terms of the mortgage and the foreclosure proceedings” and because MidFirst was “in fact making
46 Pl.’s Compl. (Doc. 2) ¶¶ 9, 12.
47 Id. ¶ 13.
48 Id. ¶ 16.
49 Id.
50 Id.
51 Id.
52 Id.
53 Id.
its representations under oath.”54 Ms. Hunter briefly alleges that she has been “damaged” as a result of the above acts by MidFirst.55
Ms. Hunter also seeks damages against MidFirst for violations of Arkansas Code Annotated section 5-37-226. That statute provides in part:
(a) It is unlawful for a person with the knowledge of the instrument’s lack of authenticity or genuineness to have placed of record in the office of the county recorder or the office of the Secretary of State any instrument:
(1) Clouding or adversely affecting:
(A) The title or interest of the true owner, lessee, or assignee in real property; or
(B) Any bona fide interest in real property; and
(2) With the purpose of:
(A) Clouding, adversely affecting, impairing, or discrediting the title or other interest in the real property which may prevent the true owner, lessee, or assignee from disposing of the real property or transferring or granting any interest in the real property 56
“A person who violates subsection (a) of this section is guilty of a Class A misdemeanor.”57
A second violation of this statute can result in a felony conviction.58
And “[a]n owner of real property who suffers loss or damages as a result of conduct” prohibited under this statute and “who must bring civil action to remove any cloud from his or her title or interest in the real property or to clear his or her title or interest in the real property is entitled to three (3) times actual damages, punitive damages, and costs, including any reasonable attorney’s fees or other costs of litigation
54 Id.
55 Id.
56 Ark. Code Ann. § 5-37-226(a).
57 Id. § 5-37-226(b)(1)(A).
58 Id. § 5-37-226(b)(1)(B).
reasonably incurred.”59
Ms. Hunter’s factual allegations regarding fraud undergird her claim with respect to Arkansas Code Annotated section 5-37-226.
Ms. Hunter alleges that MidFirst’s fraudulent acts with respect to the foreclosure proceeding were “committed with the intent of clouding or discrediting her title and interest to the Property . . . .”60
Ms. Hunter says that these fraudulent acts culminated in the “filing of a knowingly false Trustee’s Deed that purported to convey the Property to Midfirst and thereby clouded or otherwise adversely affected [Ms. Hunter’s] title or interest.”61
Ms. Hunter’s Complaint also mentions other potential causes of action against MidFirst.62
For instance, Ms. Hunter alleges that MidFirst violated the Arkansas Deceptive Trade Practices Act (“ADTPA”).63
Ms. Hunter makes multiple damages allegations.
Ms. Hunter says that MidFirst’s “unlawful conduct caused harm to [Ms. Hunter] for which she is entitled to both compensatory and punitive damages from MidFirst . . . .”64
Respecting MidFirst’s alleged violations of the Act, Ms. Hunter says she “has been damaged and is entitled to the relief more fully set forth below.”65
Ms. Hunter says the same exact thing with respect to her claims based on fraud and violations of
59 Id. § 5-37-226(c).
60 Pl.’s Compl. (Doc. 2) ¶¶ 15–16.
61 Id.
62 Id. ¶ 23.
63 Id.; see also Ark. Code Ann. §§ 4-88-101 to 117. Ms. Hunter alleges that Wilson & Associates violated the ADTPA as well. Pl.’s Compl. (Doc. 2) ¶ 16. She also says that MidFirst’s conduct “is actionable under the common law torts of (1) slander of title, (2) outrage, and (3) abuse of process.” Id. ¶ 23. Ms. Hunter also alleges that Wilson & Associates is similarly liable for the same torts. Id. However, in a subsequent filing, Ms. Hunter concedes that her Complaint does not sufficiently state a cause of action for these torts. Pl.’s Resp. to MidFirst’s Mot. to Dismiss (Doc. 20) at 2. These tort claims are out.
64 Pl.’s Compl. ¶ 10.
65 Id. ¶ 13.
Arkansas Code Annotated section 5-37-226.66
In the section of the Complaint titled Damages and Relief, Ms. Hunter alleges that, due to the acts and omissions of MidFirst, she “has sustained damages . . . .”67
In terms of relief, Ms. Hunter wants the Trustee’s Deed declared void and set aside.68
She also requests “compensatory damages for the harm she has suffered,” including “the fair market value of her Property, loss of rents/profits, embarrassment, humiliation, damage to her reputation, mental anguish, emotional distress, attorney’s fees, court costs, and interest both pre-judgment and post-judgment.”69
Ms. Hunter seeks “treble the amount of the above compensatory damages” pursuant to Arkansas Code Annotated section 5-37-226.70
Finally, Ms. Hunter alleges that MidFirst’s conduct warrants punitive damages.71
C. Allegations Against Wilson & Associates
Ms. Hunter’s claims against Wilson & Associates largely overlap with her claims against MidFirst.
Ms. Hunter alleges that Wilson & Associates, acting as MidFirst’s attorney-in-fact, violated the Act in a number of ways, including by
(1) preparing the Notice of Default and Intention to Sell without identifying the specific default underlying the foreclosure;
(2) failing to send the Notice of Default and Intention to Sell to Ms. Hunter within 30 days of its recording;
(3) failing to provide Ms. Hunter with loan modification information;
(4) conducting the foreclosure sale and facilitating the purchase of the Property knowing that Wilson & Associates had not complied with the Act;
and
(5) filing the Trustee’s Deed, “which fraudulently and maliciously
66 Id. ¶ 16.
67 Id. ¶ 24. Ms. Hunter’s prayer for relief applies equally to Wilson & Associates.
68 Id. ¶ 24(a).
69 Id. ¶ 24(b).
70 Id. ¶ 24(c).
71 Id. ¶¶ 6, 24(d).
misrepresented under oath that MidFirst [] and/or Wilson & Associates had complied with the [Act’s] statutory requirements and which purported to deprive [Ms. Hunter] of her title to the Property.”72
Ms. Hunter says that Wilson & Associates fraudulently conducted the foreclosure on the Property.73
Specifically, Ms. Hunter alleges that Wilson & Associates’s failure to comply with the Act constituted intentional, false, and fraudulent conduct of a foreclosure proceeding against [Ms. Hunter], all of which was committed with the intent of clouding or discrediting her title and interest to the Property, and which resulted in the filing of a knowingly false Trustee’s Deed that purported to convey the Property to MidFirst [] and thereby clouded or otherwise adversely affected [Ms. Hunter’s] title or interest.74
Ms. Hunter also says that Wilson & Associates falsely represented to Ms. Hunter that her Property was subject to foreclosure even though Wilson & Associates knew that it had not complied with the Act.75
Wilson & Associates, according to Ms. Hunter, “knowingly misrepresented to [Ms. Hunter] and others in the false Trustee’s Deed that [Wilson & Associates] had complied with the requirements of the Act . . . and was therefore entitled to ownership and possession of the Property.”76
Ms. Hunter contends that Wilson & Associates made these representations to purchase Ms. Hunter’s Property and deprive her of her ownership rights.77
Ms. Hunter says she “justifiably relied on these misrepresentations” because “Wilson & Associates was in a superior position to know and understand the issues surrounding the terms of the mortgage and the
72 Id. ¶¶ 17–19.
73 Id.
74 Id. ¶ 21.
75 Id.
76 Id.
77 Id.
foreclosure proceedings . . . .”78 Finally, Ms. Hunter briefly alleges that she was damaged by Wilson & Associates.79
Additionally, Ms. Hunter points to Wilson & Associates’s alleged fraudulent activity to make a claim under Arkansas Code Annotated section 5-37-226 (discussed above).80
Ms. Hunter says that Wilson & Associates fraudulently conducted the foreclosure proceeding “with the intent of clouding or discrediting her title and interest to the Property, and which resulted in the filing of a knowingly false Trustee’s Deed that purported to convey the Property to MidFirst [] and thereby clouded or otherwise adversely affected [Ms. Hunter’s] title or interest.”81
78 Id.
79 Id.
80 Id. ¶¶ 20–21.
81 Id. ¶ 21.
Continue reading PDF Opinion [start at page 12 of 30] for the reasoning provided by this Federal Judge for rejecting each and every part of the above complaint, as summarized…
Conclusion
For the foregoing reasons, Plaintiff’s Motion to Remand is DENIED.
Wilson & Associates’s Motion to Dismiss is denied as moot.
MidFirst Bank’s Motion to Dismiss with prejudice is GRANTED in part and DENIED in part.
MidFirst sought dismissal with prejudice.
The Court believes it appropriate to give Ms. Hunter the opportunity to try and amend her Complaint to fix the deficiencies identified.
To be fair, the Court is not sure she can do so.
But she should have the opportunity to try.
Ms. Hunter has thirty days from the date of this Order to file an Amended Complaint.
IT IS SO ORDERED this 20th day of December 2021.
Pursuant to the Order filed on December 20, 2021, it is CONSIDERED, ORDERED, and ADJUDGED that all claims against Defendants are
dismissed without prejudice.
IT IS SO ADJUDGED this 1st day of February 2022.
LEE P. RUDOFSKY
UNITED STATES DISTRICT JUDGE
justice
